BUSINESS

SMME Index

Small and medium enterprise (SME) owners’ confidence levels that the South African economy will be conducive for business growth in the next 12 months has declined for the second successive quarter. And, SMEs surveyed have almost unanimously indicated that their main challenges in the next 6 to 12 months would be economic conditions, cash flow and funding.

But, it doesn’t seem to be all doom and gloom: Business owners, surveyed during the third quarter 2015 for the Business Partners Limited SME Index (BPLSI), reported surprisingly higher confidence levels that labour laws would not impede their business’ growth, they would find appropriately skilled staff and that government is doing enough to foster SME business growth.

Measuring attitudes and confidence levels among South Africa’s SME owners, the 2015 third quarter BPLSI, released today, reported average confidence levels of 57% that the South African economy will be conducive for business growth in the next 12 months. This was the second successive quarterly decline since peaking at 60% (the highest level since commencement of the BPLSI in 2012) during the first quarter of 2015.

Nazeem Martin, MD of Business Partners Limited (BUSINESS/PARTNERS), says that SME owners’ sentiment on future prospects is being driven by the current tough economic environment and the negative prognosis for a quick economic recovery, the cash flow challenges they’ve been experiencing having had to survive turbulent economic conditions since 2009, and their ability to obtain affordable funding in a rising interest rate environment where traditional lenders have more stringent lending criteria.

He adds that the second quarter 2015 contraction in GDP, with some economists’ hinting of possibly also a third quarter GDP contraction which would technically signal that we’re in a recession, have adversely impacted on SME owners’ sentiment and business operations.

“Business owners’ clients, both public or private sector procurers and ordinary consumers, all seem reluctant or unable to spend. And when they do spend, there is often a delay in payment to SME business owners for the goods or services rendered.”

A recent SA Institute for Chartered Accountants survey revealed that cash flow woes top the list of reasons why small businesses fail. “The generally tough economic environment which is expected to be with us for the next 12 to 24 months, together with delayed payments from reluctant and often cash-strapped customers, will challengethe cash resource management capabilities of SMEs, possibly leading to many of their demise,” says Martin.

The index also reveals the extent of how current economic conditions are testing business owners. He points to one of the comments received from a respondent on what impacted confidence levels most - “Constantly having to ‘make a plan’ to perform daily tasks.”

“This October the International Monetary Fund (IMF) projected South Africa’s growth to be below 1.5% for both this year and next year. The Rand reached an all-time low against the dollar and we are hearing talk of retrenchments in the mining sector – all these aspects have taken their toll on SMEs confidence as more and more of their clients are cutting on their spending,” says Martin.

Martin adds however that despite these woes, the index has once again affirmed entrepreneurs’ ability to ‘make a plan’ and remain positive despite the negative conditions. “Although it may take them twice as long, entrepreneurs will find a solution and continue to survive and thrive.”

Business owners reported improvements in average confidence levels that the current labour laws are conducive to the growth of South African businesses. Respondents also seem to have more confidence in Government’s efforts to foster SME development in the country. “These two indicators reported the highest confidence levels since the index’s launch in 2012. We believe this may be attributed to the expectation that the recently established Small Business Ministry will improve conditions for SMEs in general, reform of some Government processes such as SARS small business help desks, as well as entrepreneurs’ inherent can-do attitude and adaptable nature.”

But, with both these confidence levels under 50 percent, Martin stresses that more needs to be done to support business owners.

He says that Government and the private sector need to continue to work together to drive SME growth within the country. “We need to see more business investment from the private sector and concerted efforts to include SMEs into their supply chains. And, the bottlenecks that are delaying some of the government’s infrastructure programmes need to be eliminated with clear set asides to include SMEs into government procurement of goods and services. In the current economic environment, small businesses need support.”